Is Phillips 66's Midstream Push Building More Resilient Business?

Phillips 66 PSX is an integrated downstream player that refines crude oil into final products. It also transports and stores crude oil, natural gas, NGL and refined products through its pipeline network and storage facilities.

According to oilprice.com the West Texas Intermediate (WTI) crude is currently trading below $60 per barrel, down year over year from $73.5 per barrel, reflecting a soft oil price environment. This creates a positive business environment for the downstream player as PSX can purchase its raw materials at relatively lower prices, bringing stability to its business model.

Additionally, as highlighted in its third-quarter earnings update, PSX derives a significant portion of revenues from its midstream business by renting its midstream assets to shippers who pay fees for the booked spaces, whether utilized or not. These stable fee-based revenues generate predictable cash flow and support PSX’s business model. As a result, Phillips 66’s business is protected from crude price volatility, giving it an edge over its peers.

PSX has increasingly been focusing on growing itsmidstream and chemicals businesses to generate additional cash flow and strengthen its business model.

PBF & PSX Have Advantage Over VLO

PBF Energy Inc. PBF and Valero Energy Corporation VLO are two other downstream players. PBF and VLO’s business models are also gaining from the softness in crude prices. Unlike VLO, PSX and PBF generate revenues from their midstream and downstream businesses. However, unlike PSX, PBF generates insignificant revenues from its midstream business compared with its refining segment, thereby leaving its business model vulnerable to crude price fluctuations.

PSX’s Price Performance, Valuation & Estimates

Shares of Phillips 66 have gained 13.3% over the past year compared with the 12.2% rally of the composite stocks belonging to the industry.

From a valuation standpoint, PSX trades at a trailing 12-month enterprise-value-to-EBITDA (EV/EBITDA) of 13.69X. This is above the broader industry average of 4.51X.

The Zacks Consensus Estimate for PSX’s 2025 earnings has been unchanged over the past seven days.

Phillips 66 currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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